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Not So Affordable Care By Charles Payne

Well, even the architects of the Affordable Care Act (ACA) are finding out that it's not so affordable for their business, and now they may try to opt out. Obamacare is imploding rapidly and now everyone is eyeing the exits. The problems were well known as the bill was being rammed through Congress and foisted upon the American public; it is actually turning out to be worse than it was advertised, and it is unlikely to get better.

Early Warning

There was a number or warnings about Obamacare from my daily musings to politicians and outside researchers that saw the serious potential for disaster. Here's an excerpt from one such briefing:

Beginning in 2014 when major provisions of the Patient Protection and Affordable Care Act became effective including guaranteed issue and Community Rating many people with poor health will have the opportunity to purchase insurance some for the first time and a premium rates the same as those charge to their healthier peers ensures are wary of the unknown financial impact inherent in this market shift

To address this risk the federal government introduced the three R's to help insulate ensures the 3 R's include transitional reinsurance & Risk corridor programs along with a permanent risk adjustment mechanism however the extent to which insurers will be protected by these programs is not obvious because they interact with a complex manner.

-Milliman Healthcare Reform Briefing Paper December 2013

Yesterday's Warning

Yesterday, United Health Care made it official as the company lowered financial guidance (only hiked a few months earlier), placing the blame squarely on Obamacare. In fact, management issued a warning of a different sort, saying that it may actually opt out of the program altogether. This is huge; one wonders if it would set up a battle where the next presidential administration has to force insurers to offer products and coverage, even at mounting losses.

Of course, if a Republican gets into the White House, then it would be easier to repeal and replace.

In the meantime, things have taken a turn for the worse for the health insurance companies, which rocketed on the hopes that more customers would offset the coverage of those less healthy Americans. It's not the pre-existing conditions folks; it's the massively obese group of Americans. They are wreaking havoc on the morbidity assumptions and actuary tables. Back in 2011, the ishares U.S. Healthcare Providers (NYSEARCA:IHF) was trading at 52, and then went on a tear peaking at 143 in June of this year for a 175% gain.

Top ten Holdings IHF

UNH

ESRX

AET

ANTM

CI

HUM

HCA

LH

DVA

UHS

IHF

However, the news slammed all the names in the space as well as hospital stocks, too. Aetna (NYSE:AET), which is merging with Humana (NYSE:HUM), was already having issues with ACA-it has been telling investors that ACA was a source of Opportunity in 2016.

Pool

Premiums

Profitability

Small 2 - 100

$7.0 billion

Profits- but Less than anticipated

On- Exchange

$2.7 billion

Unprofitable

Off - Exchange

$0.8 billion

Breakeven

These are comments from Humana on its individual commercial business:

Operating results for the company's individual commercial medical business continue to be challenged primarily due to the volatility related to the start of the healthcare exchange program created under the Affordable Care Act (ACA) as well as the morbidity of membership served under this relatively new program.

The benefit ratio associated with many of the company's individual products, in particular ACA-compliant offerings, continue to exceed prior expectations for FY 2015 driven primarily by product designs which attracted a higher-utilizing member base than was assumed when the 2015 plan offerings were priced, in part due to the on-going impact of the transitional policies associated with the program.

The transitory nature of the population served has also contributed to use of emergency room services and non-participating providers above priced-for levels.

During 2015, the company has taken a number of actions that are anticipated to improve the profitability of the individual commercial business in 2016. However, the deterioration in claims experience for this business in 3Q 2015, if it continues, would reduce the likelihood of achieving the level of profitability the company had previously anticipated for this business in 2016. The company continues to evaluate its participation in this line of business for 2017.

There is no doubt that Obamacare is set up to bankrupt the nation, but it is on the way for-profit for insurance companies and hospitals. I am not in the conspiracy camp that says it's all been designed deliberately, resulting in such an implosion that the nation would be left with a single-payer system, but it could happen through sheer luck. The trail of carnage would be immense, making it the most significant Pyrrhic victory in history.

Tough medicine would be to bring this thing down immediately. Repeal and replace it with a plan that generates competition and rewards for prevention and healthier living; it will be so immense that people wouldn't ignore it.

Tough Medicine

There is no doubt that Obamacare is set up to bankrupt the nation, but it is on the way for-profit for insurance companies and hospitals. I am not in the conspiracy camp that says it's all been designed deliberately, resulting in such an implosion that the nation would be left with a single-payer system, but it could happen through sheer luck. The trail of carnage would be immense, making it the most significant Pyrrhic victory in history.

Tough medicine would be to bring this thing down immediately. Repeal and replace it with a plan that generates competition and rewards for prevention and healthier living; it will be so immense that people wouldn't ignore it.

Today's Session

Markets indicating to open higher despite terror events and worries around the world punctuated by this morning's attack in Mali, which is an on-going situation. Some pundits are asking on television and other places why the market isn't lower. Many are die-in-wool bears, but it's a good question.

Historically, the stock market has been a predictive mechanism. One way to look at the reaction is the market sees recent attacks as a catalyst to take decisive action that will actually mitigate terror in the future. Moreover, short-term behavioral changes like the French and British not going to shopping malls this weekend, is temporary, and they will return in short order.

Of course, the assumption America is going to do anything decisive is questionable under the current administration- but the American public will demand a more effective approach to crushing, not containing terrorists. In the meantime, the French stock market is having one of its best weeks in a long time and could finish the week up two and a half percent.

CAC

Ironically, the market is very short-term when it comes to near-term earnings warnings, instead of taking that same long term approach that stops terror attacks from crushing our financial markets.

This week was all about retail, and its clear with Americans reluctant to spend, there are decisive winners and losers. Nobody is shopping at the Gap, but deep discounters are seeing an uptick underscored by results from Ross (NASDAQ:ROST) last night.

The news out of the ECB is giving stocks a little help this morning, but it's not really "news."